Reducing methane emissions from oil and gas is one of the cheapest options for reducing greenhouse gas emissions across the economy. This results in approximately a quarter (17 million tonnes) of the total reduction in methane emissions from oil and gas until 2030.
Reducing oil and gas methane is one of the most
Some of the greatest opportunities to deploy reduction options at no net cost lie in middle-income countries, especially in Eurasia, the Middle East, and the Asia-Pacific region. For example, in Turkmenistan, approximately 1.4 million tons of methane could be reduced by measures at no net cost in 2030; in Iraq, which has flared nearly 18 billion cubic meters of natural gas in 2022, resulting in a large amount of methane emissions, emissions could be reduced by more than 0.6 million tons in 2030 at no net cost.
In low- and middle-income countries, the average cost is around USD 2/ton CO2 equivalent. Even if there was no value for the captured gas, almost all available mitigation measures would be cost-effective in the presence of an emission price of around USD 20/ton CO2 equivalent, which means that methane reduction in the oil and gas industry is one of the cheapest options to reduce greenhouse gas emissions throughout the economy. Nevertheless, new sources of finance are likely to be needed to mobilize all the necessary investments in the NZE scenario.
Financing methane reduction will be most challenging in low- and middle-income countries, especially in those without strong methane reduction policies and regulations, in facilities owned and operated by NOCs and smaller independent companies, and for measures that do not have meaningful return their lives. In such a context, we estimate that new sources of financing could be needed to mobilize approximately $15 to $20 billion in spending to achieve methane reduction at the pace and scale seen in the NZE scenario. Our estimates of emissions and costs do not include abandoned and orphaned oil and gas wells.
Our cost estimates do not include capacity building and technical support to develop and implement sound methane policies and regulations.
Financing options to accelerate action
Oil and gas companies carry primary responsibility for abatement
Methane treatment is one of the most easily implemented and cost-effective measures available in any sector of the economy to reduce GHG emissions, and committed companies should aim to treat all emissions from their operations, not just those that would result in a positive effect. payback Companies that take the lead in addressing methane emissions can gain a commercial advantage along with reputational and environmental benefits. Regulations to reduce methane emissions – including financial penalties – are likely to multiply in the future, especially in economies with net zero targets.
Oil and gas importers and consumers are increasingly looking to address methane emissions from their suppliers. Public visibility and scrutiny of emissions from oil and gas supply is also set to increase as the use of satellite and other remote sensing systems and related data becomes more available. A number of companies – including those at the Oil and Gas Climate Initiative – have shown that it is possible to make a commitment to achieve near-zero methane emissions.
Some providers have started offering seed capital to deploy abatement technologies with a flexible reward model that allows operators to pay them back from revenues over the life of the project.
Private finance can help support robust methane abatement projects
The NZE scenario requires a lot of investment in "transition" areas, including reducing methane emissions in the oil and gas sector, which may be prevented by these restrictions. New private sector funds could ensure that finance is available to oil and gas companies that would otherwise struggle to invest in off-balance sheet methane mitigation measures, particularly those in low- and middle-income countries. This would provide private financial actors with confidence that investments to reduce methane emissions are consistent with their climate commitments.
There are several market-based options available that could potentially be used to finance investment in methane reduction. These include green bonds, sustainability-linked bonds and transitional bonds, although some standards and taxonomies exclude oil and gas-related investments. As a result, it is unclear whether oil and gas companies are eligible to issue green bonds, and by extension, sustainability-linked bonds, under existing international standards.
In all cases, private sector financing of methane reduction must be linked to proper technical implementation, operational best practices, and consistent reporting and measurement of methane emissions.
Public financing can catalyse private investment and fill gaps where traditional finance struggles
Many of these institutions may still be able to fund mitigation projects under the right circumstances. IFC, for example, has been able to continue to provide financing and advisory services for methane reduction and flaring projects at existing facilities in compliance with these restrictions. Even for those with more extensive constraints, mechanisms may still be available for them to support methane abatement activities without directly funding abatement projects.
For example, the European Bank for Reconstruction and Development (EBRD), which has announced its move away from fossil fuel financing, has continued to provide subsidies directly to governments, including Kazakhstan and Uzbekistan, to support methane reduction programs. to develop. Public funding can also help regulators in low- and middle-income countries develop the capacity needed to draft, adopt and implement new and improved regulations. The German Nitric Acid Climate Action Group does this in the context of N2O reduction, providing both financial support for reduction technologies and support to governments to develop regulatory capacity.
Case studies
International emissions pricing schemes
Bangladesh, India and Oman – although only 7 projects have been registered since the price of CDM credits fell in 2012. The future of CDM is uncertain pending the outcome of negotiations under Article 6 of the Paris Agreement. The World Bank has explored the suitability of the PAF model for methane reduction in the oil and gas sector and has shown that it can help remove barriers in the sector.
To be most effective, the World Bank emphasized that any future facilities will need to carefully consider the size and scale of projects in their design, use existing verification standards for saving resources, and ensure that they marketed well to attract a wide range of investors. LDAR equipment programs and investments are likely to be the most appropriate project categories for any future iteration in methane reduction for the oil and gas sector. If emissions markets include different types of GHG emissions, a key issue is the rate of conversion of a tonne of methane into CO2 equivalent.
There is no universally recognized standard for this, and the specific choice can have major implications for the attractiveness of methane abatement compared to other emissions reduction measures.
The Alberta Emission Offset System: a sub-national emissions pricing scheme that has stimulated new
Once the upfront capital expenditure has been recovered or the project breaks down, the proceeds are shared with other project partners, including the asset owner. About 200 projects have been developed for 35 companies in Alberta since its inception in 2017, saving about 1.7 Mt of CO2-eq methane emissions. AEOS provides flexibility for oil and gas companies to reduce emissions in a cost-effective manner by driving innovation and adoption of new technologies.
In Alberta, it is complemented by regulatory standards, including both command-and-control requirements and a province-wide emissions reduction target to ensure reductions are implemented across the sector. However, because it is paired with another climate financing mechanism (Alberta's carbon offset market), it has encouraged specialized companies and new sources of financing to enter the market as service providers. These providers have been able to assist oil and gas operators who would otherwise struggle to finance the deployment of emissions reduction measures or who lack the necessary technical expertise or capacity.
Selling emission credits also provides an additional source of income for technologies that may otherwise struggle to generate a positive return.
Transition bonds and sustainability-linked financing are helping to fill the gap with private funding
Transition bonds and sustainability-related financing are helping to fill the gap with private financing. Green bonds are usually linked to specific projects, while transition bonds and sustainability-related bonds tend to be more flexible. After the bond matured, the company issued a Final Report outlining how the proceeds were used to achieve the green bond's goals.
The bond is being used to help meet its goal of reducing its methane emissions by 40% from 2016 levels by 2030 by replacing old generation heaters and implementing a campaign to identify and repair methane leaks. It is being used to retrofit and repair the company's gas distribution network to reduce methane leakage. Eni, the Italian oil and gas company, issued a sustainability-dependent bond for 1 billion. EUR with a term of 7 years.
Activity under the bond is outlined in the company's Sustainability-linked Financing Framework, which includes reductions in methane emissions.
Canada’s Emissions Reduction Fund: direct public funding for emissions reduction projects
These can encourage debt market financing for methane reduction by providing investors and bond issuers with a tool while ensuring that methane reduction targets are clearly defined and implemented. Many current taxonomies do not specifically allow funding for methane control in the areas where it could be most relevant and impactful. In the Canadian context, when the fund was announced, the federal and provincial governments had compliance deadlines and the funding helped companies meet their regulatory obligations – and go beyond.
Governments are often unwilling to provide direct financing to the oil and gas industry, and those that do exist are often in the context of abandoned or orphaned wells. To mitigate these problems, the Emissions Reduction Fund tied performance to exceeding and exceeding compliance, and the government justified the measure in part as an effort to preserve industry jobs in a time of low prices. Requiring companies to measure and report annually on emissions reductions achieved will help improve the data situation.
However, there were still questions from lawmakers in Canada about how emissions reductions were quantified, especially for reduction estimates that were in addition to regulatory requirements.
Technical annex
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